Ellis v. Ellis

203 A.2d 547, 415 Pa. 412, 1964 Pa. LEXIS 466

• Court: Supreme Court of Pennsylvania
• Decided: September 29, 1964
• Docket: Appeals, 190 and 191
• Status: Published

Opinions

Opinion by

Mr. Justice Cohen,

The principal issues here on appeal are (1) whether, upon the death of a partner, jurisdiction over a proposed sale of partnership assets to the surviving partners is exclusively in the orphans’ court and (2) whether prior orphans’ court approval is necessary for such a sale where the surviving partners are also co-executors of the deceased partner’s estate.¹

The A. M. Ellis Hosiery Company and the Chester Pike Drive-In Theatre Company were operated as partnerships-at-will under an oral partnership agreement. The partners in each were appellees Martin Ellis (Martin) and Sidney Ellis (Sidney), appellant Herman Ellis (appellant), and their father, Abraham M. Ellis (Abraham), each of whom owned a 25% interest. Abraham died in 1961, but the partnerships have not as yet been terminated. The co-executors under Abraham’s will are appellee Buth B. First (his daughter), appellee Sylvan M. Cohen (his attorney), and Herman, Martin and Sidney (his sons and former partners).

Following the death of Abraham, animosity developed between appellant and appellees Martin and Sidney. As a result Martin and Sidney filed bills in equity² in common pleas court asking that court to enter a decree of dissolution of the partnerships and to decree and supervise a restricted auction of all of the partnerships’ assets with bidding limited to the parties holding partnership interests. Appellant filed preliminary objections in his individual capacity and as co-executor which challenged the jurisdiction of common pleas to direct the sale, and which additionally asserted that prior permission of the orphans’ court must be obtained before common pleas can permit either the purchase of estate assets by executors or a sale thereof at restricted auction. These preliminary objections were dismissed and this appeal followed.³

Appellant contends that Martin and Sidney here seek a distribution of assets of Abraham’s estate and that jurisdiction thereover is exclusively in the orphans’ court by virtue of §301(1) of the Orphans’ Court Act, Act of August 10, 1951, P. L. 1163, as amended, §301(1), 20 P.S. §2080.301(1). While we agree that distribution of an estate is exclusively in the orphans’ court, this rule has no application here for (1) the assets sought to be sold do not include estate assets but are all assets of the partnerships, and (2) the relief Martin and Sidney seek is not distribution of assets but dissolution and winding up of partnerships and an accounting of the surviving partners’ interests therein as well as that of the deceased partner. There can be no question of the jurisdiction of common pleas over these matters.⁴

First, it is clear that the assets involved in the proposed sale do not include assets of Abraham’s estate. During his lifetime, the right of a partner in specific partnership property is limited. The Uniform Partnership Act⁵ (hereafter the Act) provides that a partner may not possess specific partnership property for other than partnership purposes without the consent of his partners; neither may he individually assign that right of possession, nor is that right subject to doiver and curtesy. UPA §§72(2) (a), (b), 72(2) (e). In addition, specific partnership property may not be made subject to attachment or levy for the individual debt of a partner although a partner’s judgment creditor may subject that partner’s share of profits to the lien of a charging order. UPA §§72(2) (c), 75; Shirk v. Caterbone, 201 Pa. Superior Ct. 544, 193 A. 2d 664 (1963).

At the death of a partner, not only does his estate acquire no greater right in specific partnership property than the decedent had during his lifetime, but the above limited right which the partner had in such property during his lifetime is vested at his death in his surviving partners and not in his estate. UPA §72(2)d. Further, where a partner dies and the business is continued without a settlement of accounts, as in the case at bar, the Act specifically limits the estate to (1) ascertainment of the “value of [decedent’s] interest⁶ at the date of dissolution” and (2) receipt “as an ordinary creditor [of] an amouut equal to the value of [decedent’s] interest. . . .” UPA §104. (Emphasis supplied). Hence, since the estate has no right in specific partnership assets, the subject matter of the sale cannot be denominated as estate assets. There is, therefore, no property upon which orphans’ court jurisdiction can attach.

Secondly, the very essence of the relief sought by Martin and Sidney and the immediate result thereof is settlement of the liabilities of the partners inter se, and determination of the value of the partnership in toto and the value of the estate’s share therein. Therefore, the relief actually prayed for is not distribution of assets but dissolution of partnerships and the accompanying accounting and winding up,⁷ over which common pleas has full jurisdiction.

Appellant’s claim of orphan’s court jurisdiction is premature. The ascertainment of the value of the estate’s individual share through accounting and the production of the means of payment for that value through winding up — the very procedures for satisfying the estate’s only two rights under UPA §104— are here the sole means for generating an estate asset. When payment is made to the estate,⁸ then, for the first time, an asset of the estate distinct from partnership assets is generated.⁹ It is this estate asset which is subject to distribution under orphans’ court jurisdiction. Until payment is made to the estate, ordinary partnership liquidation, dissolution and accounting are in issue and common pleas has jurisdiction thereover.¹⁰

Appellant’s additional contention is that prior orphans’ court approval is necessary for the purchase of estate assets by executors by virtue of §546 of the Fiduciaries Act, Act of April 18, 1949, P. L. 512, as amended, §546, 20 P.S. §320.546. We do not agree. The application of that section of the Fiduciaries Act is specifically limited to “property belonging to the estate.” The above described nature of the subject matter of the proposed sale demonstrates that the Estate has no specific property interest therein. The subject matter of the proposed sale is the totality of the assets of the partnerships. The requirements of §546 of the Fiduciaries Act are therefore inapplicable.

Appellant expresses the fear that a restricted auction will produce an inadequate price as a result of his inability to effectively bid against the combined forces of his co-executors. However, the terms and method óf sale, whether by restricted auction or otherwise, are subject to determination not by his co-executors but by the court of common pleas, from which determination appellant may appeal. Appellant is further protected from abuse by his co-executors for they serve in two fiduciary capacities — first as partners under . UPA §54 and secondly as executors. Should the execution of the sale by the co-executors raise doubt as to the discharge of their fiduciary duties, the remedy of surcharge is available to appellant.

The order of the lower. court dismissing appellant’s preliminary objections is affirmed, at appellant’s costs.

1 Appellant, in bis preliminary objections (para. 3 of petition raising questions of jurisdiction), conceded that common pleas jurisdiction was proper, and argued only that prior orphans’ court approval was required. However, this does not preclude bim from here questioning the subject matter jurisdiction. See Drummond v. Drummond, 414 Pa. 548, 200 A. 2d 887 (1904).

2 These bills named appellant individually and the Estate by all five co-executors as defendants. See footnote 7.

3 This interlocutory appeal challenging the jurisdiction of the court below is permitted by the Act of March 5, 1925, P. L. 23, §§1-4, 12 P.S. §§672-675. See Drummond v. Drummond, 402 Pa. 534, 538, 167 A. 2d 287, 290 (1961).

4 See Act of June 16, 1836, P. L. 784, §13, 17 P.S. §§281 (V), 282(1) ; Act of October 13, 1840, P. U. (1841) 1, §19, 17 P.S. §284.

5 Act of March 26, 1915, P. L. 18, §§1-46, 59 P.S. §§1-105, hereafter cited as UPA with references to section numbers of Purdon’s Penna. Statutes Annotated.

6 The interest here referred to means the interest in the partnership under §§71(2), 73 — an interest in profits and surplus which can be ascertained only by an accounting — and not a right to specific partnership property under §§71(1), 72.

7 We question whether the Estate is a necessary party to the winding up since decedent’s right in specific partnership property vested exclusively in the surviving partners at his death (UPA §72(2) (d)), and the right and duty to wind up affairs on dissolution was placed in these surviving partners (UPA §99). Good practice would, however, require notice to the Estate.

8 Appellant apparently confuses this payment to the estate with a distribution of estate assets. Only the latter is properly the subject of orphans’ court jurisdiction.

9 Until the time of payment, the estate has only the rights afforded in accordance with the provisions of the UPA. As noted above, these rights do not include a right to specific partnership assets.

10 See Blumenthal's Estate, 227 Pa. 268, 75 Atl. 1075 (1910); DeCoursey’s Estate, 211 Pa. 92, 60 Atl. 490 (1905); Estate of Charles B. Miller, 136 Pa. 349, 353, 20 Atl. 565 (1890); Volpe Estate, 50 Luz. L. Reg. Rep. 155, 10 Fid. Rep. 262 (1960).